As an investor, you might hope one of your investments gets lucky and yields multibagger returns quickly, growing your stake to an amount that gives you the financial freedom you've always dreamed of. The trouble is, that generally isn't how investing in the stock market works.
And while some investors try to time the market in pursuit of wealth, in reality, that strategy turns out to be much more like gambling than investing. Even if you get the timing right once, it's unlikely you'll be able to replicate that success in a way that delivers any meaningful outperformance. More likely than not, you'll miss out on the best market days because you're trying so hard to avoid the bad ones and fail to accrue a large share of the gains that you could have earned. It ends up creating a lot of complications.
Investing doesn't have to be that complicated. It boils down to consistently putting cash into great businesses and holding onto those stakes for three to five years at a bare minimum. Along the way you judiciously trim your losers and add to your winners, letting patience and time be your allies. These steps can help you yield steadier, more rewarding returns with time while removing the guesswork that comes with attempts to time the market.
If you're looking for fantastic growth stocks to buy and hold starting in 2024, here are two compelling names to consider for your buy list.
1. Intuitive Surgical
Intuitive Surgical (ISRG 1.32%) is a leader in surgical robotics, with its oldest system first approved over 20 years ago. Since that time, Intuitive Surgical's lineup of products has evolved as the adoption of robotics for minimally invasive surgery has expanded globally, and the incorporation of intertwined technologies such as artificial intelligence (AI) looks poised to revolutionize this space in the years ahead.
Intuitive Surgical makes money in several ways. Its largest stream of revenue comes from recurring sales of instruments and accessories that accompany its systems. The company can earn as much as $3,500 in instruments and accessories revenue from each procedure performed using one of its surgical systems; the instruments can be used from 12 to 18 times before they must be replaced.
System sales are its second-largest source of revenue; a single robotic surgery suite can range in price from $500,000 to $2.5 million. Intuitive Surgical's customers (i.e., hospitals) purchase its systems via traditional sales or sales-type lease arrangements with fixed, upfront, or usage-based payments.
The company also earns money from services it sells to clients, and operating leases. Intuitive Surgical charges annual fees of $80,000 to $190,000 per year per system for service contracts. Its diversity of its revenue sources -- and its focus on recurring revenue sources -- have made it a profitable, cash-rich business. And it continues to dominate the surgical robotics space, generating profits of $1.2 billion in the first nine months of 2023 alone.
In its preliminary results for the fourth quarter and full 2023, Intuitive Surgical reported revenues of $1.9 billion and $7 billion, respectively. Those figures would equate to increases of 17% and 14% year over year. Those preliminary figures also reflected a 22% increase in da Vinci procedures performed in 2023 from the prior year (partly due to the resumption of procedures in key markets like Asia) and an 8% increase in da Vinci systems installed for customers.
Share prices of Intuitive Surgical are up about 50% over the last year and 12% since the start of 2024. Its solid business model, robust balance sheet, and strong foothold on its core target market are just several green flags for this business that could induce investors to open a position in the near future.
2. Upstart
Upstart (UPST -1.31%) has had a rough several quarters -- let's get that out in the open first. The stock itself is up by about 100% over the past 12 months, partly because of short-selling by pessimistic investors and partly due to the fact that there is still interest in the future of the business, among other reasons.
Upstart uses AI and machine learning to inform more accurate, inclusive, and risk-favorable lending decisions. Its platform assesses more than 1,500 variables and leverages data on millions of repayment events to assess each person's creditworthiness instead of only relying on Fair Isaac's FICO score model. This accomplishes two goals: First, it gives lenders access to a wider swath of prospective borrowers, and second, it broadens credit access to consumers who had difficulty getting loans (or loans at reasonable rates) in the past because of how they were graded by the FICO model.
The current uncertain economic environment has meant that Upstart has had to carry more loans than usual on its balance sheet in recent quarters. Normally it approves the loans and then hands them off to a lending partner (various credit unions and banks) within six months, collecting a fee from the partner. Partners have been more hesitant of late to take on some of the loans. Also, there have been fewer loan applicants because of increased interest rates. Then there is the fact that Upstart's platform is constantly fine-tuning its assessments of the lending risks attached to the current macro environment as well as individual applicants, and fewer loans are being approved.
As a result, Upstart's top and bottom lines have taken a nosedive. Upstart was still carrying about $975 million in loans on its balance sheet as of the end of its most recently reported quarter. To remain solvent, it secured multiple funding agreements in 2023. Through the first nine months of 2023, Upstart funded about 13% of loans, while 53% were purchased through institutional investors and the remaining 34% were funded by the originated lending partners. Revenue for the third quarter totaled $135 million and adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA) totaled approximately $2.3 million.
Upstart's core competitive advantage is its unique lending model. Loan approvals are expected to rise again once economic and consumer risk lessens. The company had 100 banks and credit unions in its partner network at last count, compared to just 10 when it went public in December 2020. Its auto lending software is used by enough auto dealers that it effectively has access to about 70% of the U.S. population. With 88% of all loan applications it processes being automated (a record percentage for Upstart), it's increasing its operating advantage over traditional lenders.
Patience will continue to be warranted with this stock for the foreseeable future, and it likely wouldn't be prudent to make it a significant portfolio position. However, as an addition to a broadly diversified portfolio of stocks, Upstart stock might be too good to pass up, given the long-term potential of its business as one of the few operating at its size and scale in the multitrillion-dollar lending industry.
Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical and Upstart. The Motley Fool recommends Fair Isaac. The Motley Fool has a disclosure policy.
Certainly, as someone deeply entrenched in the financial markets and investment landscape, I can attest to the importance of making informed decisions based on a thorough understanding of the underlying assets. Now, let's delve into the key concepts mentioned in the provided article, shedding light on the nuances that shape the investment strategies for the mentioned companies.
1. Timing the Market vs. Consistent Investment: The article emphasizes the pitfalls of trying to time the market, comparing it to gambling rather than a strategic investment approach. It advocates for a more stable and consistent strategy of consistently investing in great businesses and holding onto those investments for a minimum of three to five years. This long-term perspective aims to eliminate the uncertainties associated with market timing and provides a more reliable path to substantial returns.
2. Investment Philosophy: The recommended investment philosophy revolves around consistently putting cash into great businesses and holding onto those stakes for an extended period. The idea is to trim losing investments judiciously while adding to the winners. This approach relies on the principles of patience and time to navigate the market, removing the guesswork associated with market timing.
3. Intuitive Surgical (ISRG):
- Business Overview: Intuitive Surgical is a leader in surgical robotics, with a history spanning over 20 years.
- Revenue Streams: The company earns revenue through recurring sales of instruments and accessories, system sales, services, and operating leases.
- Financial Performance: The article mentions the company's profitability, with reported revenues of $1.9 billion and $7 billion for the fourth quarter and full 2023, respectively. The company's focus on recurring revenue sources contributes to its robust balance sheet and strong market position.
4. Upstart (UPST):
- Business Model: Upstart utilizes AI and machine learning for more accurate lending decisions, assessing over 1,500 variables to evaluate creditworthiness.
- Challenges: The article acknowledges recent challenges faced by Upstart, including an uncertain economic environment, increased interest rates, and a decline in loan approvals.
- Revenue and Funding: Upstart's revenue for the third quarter totaled $135 million, and it secured multiple funding agreements in 2023 to manage its loan portfolio.
- Competitive Advantage: Upstart's unique lending model, with 88% of loan applications automated, positions it as a key player in the multitrillion-dollar lending industry.
5. Investment Advice: The article concludes by suggesting two stocks for investors in 2024, Intuitive Surgical (ISRG) and Upstart (UPST). It highlights the positive aspects of each company, including Intuitive Surgical's solid business model and Upstart's potential in the lending industry, while also acknowledging challenges faced by Upstart.
In summary, the article provides a comprehensive perspective on long-term investment strategies, focusing on the importance of avoiding market timing in favor of consistent, informed investment in businesses with strong fundamentals. The specific case studies of Intuitive Surgical and Upstart offer insights into their respective industries and potential considerations for investors.